Alstom Thermal Power

As he marks his second anniversary as chief executive of Alstom Thermal Power, Philippe Cochet talks to Power Engineering International about his strategy for the business, and reveals his opinion on the major challenges facing the European power sector.

PEi:

It is almost two years since you were appointed head of Alstom’s Thermal Power division. In that time, what have been your main short-term goals for the business?

Philippe Cochet  

Philippe Cochet:
We have pursued four main goals that have strongly contributed to our bottom line. Firstly, the increase of our service, offering both on our own installed base, but also on the equipment sold by our competitors; secondly, the development of a new component and power island sales offering in addition to our traditional turnkey capability; thirdly our continued deployment in high-growth regions like China, India, Brazil, Middle-East, South-East Asia and Russia, and finally our comeback on the 60Hz market with the objective of strengthening our presence in the combined cycle gas market, mainly in the US. This strategy is allowing us to increase our market share in a fluctuating environment, and despite a difficult economic situation in Europe.

PEi:

And looking longer-term, what is your strategy over the next five to ten years? What kind of business do you want Alstom Thermal Power to be in ten years’ time?

Philippe Cochet:

At the base of our strategy we first have growth, which we are pursuing through increased diversification of our product portfolio offering. This will not change. We have also accelerated our geographical footprint expansion. This will continue. The second element is technology, which is the base of the innovation necessary to improve our product and service offering, and retain our leadership position. Finally, we are deploying operational excellence in all our factories and for all our internal processes to secure the ever-increasing level of quality demanded by our customers.

Alstom Thermal Power

PEi:

In recent months, a number of European power utilities have confirmed they are considering mothballing or even closing some of their gas-fired power base because current market conditions mean their operation is no longer economically viable. How concerned are you about this trend, and what might it mean for your gas business in Europe?

Philippe Cochet:

The fact that gas-fired units are being pushed out of the dispatch curve results from a combination of several factors, starting with the weak electricity demand in Europe, the strong penetration of renewables, a weak CO2 price on the market, and finally the availability of cheaper coal favoured by the shale gas penetration in the US, which has released coal capacities for export. We are indeed concerned by this trend – certainly short term – as it is not only affecting our gas business, but it is also weakening the balance sheet of our customers, and reducing their appetite for investment also in other areas. A vast reflection has started with governments in Europe to resolve this issue through the creation of capacity markets. We believe these should be harmonised between the Member States, to prevent yet another layer of complexity and uncertainty to be forced on the market. Europe needs to maintain flexible and dispatchable natural gas units in the generation mix for reliability.

PEi:

The exploitation of shale gas reserves in Europe remains a controversial subject. If successful, we could see a revolution in the region’s gas supply market, as has occurred in the US, but at what environmental cost? Where do you stand on this issue?

Philippe Cochet:

Shale gas has proven to be a fantastic new domestic energy opportunity, and it is bringing a source of competitive advantage to North America. What is also clear is that all associated environmental issues, including water usage and pollution, CO2, and methane emissions need to be carefully managed. It will also be very difficult to start a similar revolution in the densely populated Europe. Because of the expected additional constraints, experts are also unanimous in saying that exploitation of shale gas in Europe will not happen at the similar low cost as in the US.

We believe, however, that the shale gas resources of Europe should at least be carefully assessed through exploratory drilling. The political decision to exploit them or not could then be made on a fully-informed basis.

PEi:

Alstom is clearly an advocate of carbon capture and storage, so do you believe the European Parliament’s recent decision to block the European Commission’s ‘backloading’ plan, which sought to boost the carbon price, represents a major setback for achieving commercial deployment of CCS?

Philippe Cochet:

Yes, it is a set-back, because the mid-term expectation of a strong carbon price could have been one of the essential drivers of CCS deployment in Europe.

CCS is an indispensible tool if we are to achieve decarbonisation of power production, and not only in Europe. The cost of electricity generated with CCS is also highly competitive, with many of the renewable energy options currently being developed through dedicated support schemes such as solar or offshore wind.

We believe that similar schemes should be made available for CCS in Europe, to give it a positive business model and ensure its deployment along with renewable energies. We are also trying to answer the business model question of CCS through a refocus of our R&D on carbon capture and utilisation (CCU), including the use of CO2 for fertilisers and enhanced oil recovery.

PEi:

You took the helm of Alstom’s Thermal Power business in the aftermath of the Fukushima disaster, which was widely touted as the death knell for nuclear power’s revival. Two years on, that prediction has proved overly pessimistic, certainly outside Europe. What is you expectation of Alstom’s nuclear business, and where do you anticipate seeing the biggest growth opportunities?

Philippe Cochet:

First of all, let me remind you that our scope of supply in nuclear includes the conventional island and associated services. The immediate consequence of the Fukushima disaster is a worldwide focus on increasing the safety of the existing installations, and we are offering solutions to support our customers in this area.

Fukushima did also drive the global industry to pause to re-affirm the safety of the newest generation of designs. This was the appropriate response.

With these reviews completed, we see several promising markets for nuclear power, including China, Russia, India and Turkey.

In Russia, we are increasing our local footprint and will establish a factory near the Black Sea with our partner Atomenergomash to manufacture steam turbines and generators for the conventional island of nuclear power plants.

PEi:

In recent weeks, relations between EDF and the UK government over the deal to build Britain’s first nuclear power plant in over 20 years appear to have cooled.

Are you concerned about this development, because presumably as a fellow French company, Alstom would be in the running to supply the steam side of the plant?

Philippe Cochet:

The development of new nuclear capacity is always a long-term process. The UK government has established firm nuclear priorities, and we will follow the evolution of this opportunity with great attention, but also with great patience.

Alstom Thermal Power

PEi:

The current investment environment in the European power sector is routinely referred to as ‘dire’. Do you agree with this assessment? If so, what do you believe our politicians should be doing be bolster investor confidence? And how can the power industry itself help?

Philippe Cochet:

Actually, it is not all that bad. 2012 has been an excellent year for our service activity, both in Europe and in the US, where the installed base is ageing. But, as I said earlier, the demand for electricity in Europe is low: it has not even yet recovered its 2008 pre-crisis level. Economic growth and electricity demand are closely linked. As long as growth doesn’t resume, we expect the investment climate to remain bearish, especially for new thermal plants. This is further compounded by the lack of visibility on the CO2 market price, and the unintended consequences of continued renewable penetration.

Long-term scenarios have already proven that the decarbonisation of the economy is feasible. Besides restoring the economic confidence globally, our EU politicians should also jointly propose and commit to a clear and credible 20-year action plan to decarbonise power production in Europe. The power industry would, of course, be ready to contribute to such an initiative. The current European energy piecemeal policy approach is making our power markets every day more volatile and fragile.

PEi:

As the economic turmoil in Alstom’s biggest historic market of Europe dampens equipment demand, what other regions/countries do you believe offer significant growth opportunities for Alstom Thermal Power?

Philippe Cochet:

The so-called BRICS economies, including South-East Asia, are definitely offering excellent opportunities, and are at the heart of our growth strategy. In our mature European and North American markets, we still have considerable service and retrofit business on the back of an ageing thermal installed base. Moreover, the penetration of renewables is also offering opportunities, in terms of technology, to increase the flexibility and reliability of the installed base, starting with lignite and coal plants.

PEi:

Alstom’s Manjung 4 turnkey project in Malaysia utilised an unprecedented level of localised manufacturing of key equipment – ie, boiler and steam turbine – in the Asian region. Is this a key strategy for your business? And what do you say to people who still believe that equipment manufactured outside of the Western world is not made to a high enough standard, and therefore is of inferior quality?

Philippe Cochet:

This is an obsolete argument. We indeed have a strong global industrial base, and are well established in Malaysia, but also in India and in China.

In Wuhan, China, we have the world’s largest boiler factory, and in Beijing we manufacture steam turbines and generators. In Russia we are also expanding our presence.

The quality standards of the equipment produced in those factories meets the most stringent standards. Localisation is increasingly becoming a requirement to obtain large equipment or infrastructure contracts in those high growth markets.

Such is already the case, for instance, in South Africa, Saudi Arabia and Russia. It is therefore a key strategy for our business to develop local competencies, including engineering, manufacturing and maintenance to serve those customers.

PEi:

You are one of the Keynote speakers at this year’s POWER-GEN Europe. Without giving too much away, what would be your one take-away message for our delegates?

Philippe Cochet:

Europe is at the cross-roads of a fundamental shift to true sustainable energy. The technology and business opportunities for the European equipment manufacturers are tremendous. We must focus on the right levers of product excellence: firstly reducing the cost of electricity generated by our equipment; secondly, reducing their environmental footprint; and lastly, increasing their reliability and flexibility. This approach is valid for all of us in our respective segments. I have great trust in the European innovation capacity, and I’m pushing Alstom to deliver Clean Power and Clear Solutions.

Philippe Cochet is one of the Keynote speakers at POWER-GEN Europe, which is taking place in Vienna, Austia, 4-6 June 2013. For more information, visit www.powergeneurope.com.

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